Friday, February 4, 2011

Ilinois Liquor Tax Saga Revisited

Back in 2009, I wrote a post about the quickly proposed and passed increase to the liquor tax rates in Illinois, which was rather dramatic. In my second post, on August 25th, I wrote that Wirtz Beverage had challenged the constitutionality of the law.

Recently, the Illinois Appellate Court actually agreed with Wirtz and ruled the "Illinois Jobs Now!" act was unconstitutional. The Illinois Constitution requires that any new legislation address a single subject, and the court found that a bill covering as wide an array of topics as was included in this law did not satisfy the requirement. (Full text of opinion here - loads as a .pdf)

If the opinion stands, Wirtz stands to receive a significant tax refund. Of course, the State of Illinois is appealing, and the Supreme Court has granted a stay, pending the appeal. Which means the liquor tax, as well as the other taxes included in the package, are still being collected for now.

The tax is/was assessed on the wholesaler, who in turn collected it from the retailer (who passed it on to the consumer, in most cases). If they get a big fat refund, do you suppose Wirtz Beverage will pass that back to the retailers?

I think the real question is whether or not the retailer will lower the shelf price for the liquor. When the retailer receives their goods a % is added to the delivery price to calculate the shelf price.

The initial reduction in price may not be very significant for some retailers as they may have eaten some of the increase (lower % of profit)to keep the shock value down to the consumer. The other issue is how much product a retailer has on hand at the old tax rate. It may take some time to go down to a lower shelf price. Which may lead some to believe that certain shops may just keep the price the same and reap the rewards of have a higher % of mark up.

Also a fair point, but what the retailers will do is dependent on what the distributors do. I imagine you are right - some will just keep their prices at current levels. However, if some drop them, eventually others may be forced to for competition sake. On wine & beer, it's not an issue, but it's $2 on a bottle of spirits, which is sometimes enough to get people to shop around.